T776 form explained: Streamlining rental property income reporting

If you earn income from a rental property, you are required by the Canada Revenue Agency (CRA) to complete Form T776. This form details your rental income, expenses, and co-owners and partners.

What is Form T776?

Form T776 is also called the Statement of Real Estate Rentals. The Canada Revenue Agency (CRA) requires it be completed by those earning income from rental properties. It’s used to declare rental income and expenses for Canadian income tax, including partnership income from rentals.

Form T776 applies to anyone who is in a partnership (as co-owners of a property), business or self-employed, and who earns rental income. Rental income comes from renting houses, apartments, rooms, and space in an office building.

There is a difference between rental income and business income. Rental income involves renting space and providing only basic services such as heat, parking and laundry. Business income involves additional services such as cleaning and meals. The more services you provide, the greater chance you have business income, not rental income.

If you have business income, you must complete the T2125 form (TP-80-V in Quebec). This is the Statement of Business or Professional Activities.

Who should complete a T776?

A T776 form needs to be completed each tax year by anyone who owns a property and earns rental income from it or provides a rental space. For example, someone who rents out a room should complete a Form T776.

The parts of the T776 form

The T776 form has four parts:

• Part 1: Identification
• Part 2: Details of the co-owners and partners
• Part 3: Income
• Part 4: Expenses

There are also six additional areas:

• Area A: Calculation of Capital Cost Allowance (CCA). This includes Undepreciated Capital Allowance, if applicable, and depreciation
• Area B: Equipment additions during the year
• Area C: Building additions during the year
• Area D: Equipment dispositions during the year
• Area E: Building dispositions during the year
• Area F: Land additions and dispositions during the year

Part 1: Identification

In this portion of the form, you fill in your identifying personal information. This includes the following:

• name, address and Social Insurance Number
• fiscal year (current year)
• partnership business number
• business number or RZ account number

If you have a tax shelter identification number, include it here. If someone else is completing the form for you, they must include their name and address.

Part 2: Details of the co-owners and partners

You should complete this section if you have partners or co-owners. Up to three partners can be included. You include the following information:

• name and address of partners or co-owners
• net rental income (or loss)
• ownership percentage

Part 3: Income

On Form T776, you list the addresses and number of units of each rental property and the income from them. You can use either the accrual method or the cash method of accounting to calculate income. However, the CRA prefers the accrual method and allows the cash method in certain circumstances. One such circumstance is if using the cash method results in the same figures as the accrual method.

Income can be received as cash, cheques, in kind, or as services. Gross rent includes any rent that was paid for in cash or cheque.

Other income includes rent for which you are paid in kind or as services. For example, someone might clean your home in exchange for rental space. In this section, include the fair market value of the in kind or services. Fair market value refers to the highest dollar price a service would sell for in an open market.

Other income also includes premiums, leases and sharecropping. Finally, tax credits are included in this section.

Line 8299 is your total gross rental income. This is your gross rent plus other income.

Part 4: Deductible expenses

You can claim reasonable rental expenses that you incur to earn rental income. These include current expenses and capital expenses. Such reasonable rental expenses include advertising, office expenses and professional fees. You may also be able to deduct property taxes, motor vehicle taxes and utilities.

Rental expenses that cannot be deducted include land transfer taxes, mortgage principal and the value of your own labour.

There are several lines to complete in part 4:

Total for personal portion

If you rent out part of a house and use part for personal use, you can claim expenses for the portion of the house that is rented out. For example, if your house has 20 rooms and you rent out four of those rooms, you can deduct 100% of expenses that relate only to those rooms. This might include the cost of painting those rooms. You can also deduct 20% of the expenses that relate to the whole building, such as insurance.

Other lines include:

• net income (or loss) for all co-owners and partners before any adjustments
• other expenses of the co-owners and partners
• recaptured capital cost allowance
• terminal loss
• total capital cost allowance claim
• GST/HST rebate
• oher expenses of the partner
• your net income (or loss)

FAQs

What expenses can I deduct for a rental property income business?

You can deduct reasonable rental expenses that you incurred to earn rental income. For example, to find renters you might have to pay for advertising. You likely also have to pay for insurance and repairs and maintenance to the property or rental space. You may even have some motor vehicle or travel expenses if the rental property is located away from your personal property.

If someone’s rent is overdue, you may have to file for collections. The cost of collections is deductible, as are the legal fees for preparing leases.

Can I claim expenses incurred on work on an immovable object in Quebec?

Yes. In such a case, complete form TP-1086.R.23.12-V Costs Incurred for Work on an Immovable, and attach that to your income tax return. You must provide information on every person who carried out the work unless the work was done by a government body, your employee, or an operator of a gas, telecommunications or electricity distribution.

Do I complete the T776 form if rental income is earned from an overseas rental property?

Yes. You must claim all rental income, including that from foreign properties. The information must be provided in Canadian dollars. If the cost of your foreign properties is more than $100,000 in a tax year, you need to file the Form T1135 Foreign Income Statement Verification.